Thursday, January 26, 2012

reverse passing off was harmless

Paper Thermometer Co., Inc. v. Murray, 2012 WL 194369
(D.N.H.)

Notably only because the judge, treating this as a false
advertising case, saw something that most trademark cases miss. PTC makes paper thermometers, which change
color when exposed to certain temperatures.
It sued Murray for copyright infringement and false advertising and also
sued a couple of former employees, the Duerigs, for misappropriation of trade
secrets,. (I omit some other claims and
also the family dispute aspect of the case.)

Murray, a bartender at a restaurant where the Duerigs
frequently dined, talked to them about sales or marketing jobs at PTC. Though there were no such jobs available,
Murray asked whether he could buy products from PTC and resell them, and the
Duerigs said that many people did exactly that and that they saw no reason why
Murray couldn’t do the same. Murray set
about establishing a resale business through which he could resell
PTC's paper thermometers to third parties. He asked the Duerigs for samples,
and they complied, seeing him as a potential customer.

Eventually, Murray settled on a name, Dishtemp Safety
Company, registered a second level domain name, established a toll-free
telephone number, and set up a PayPal account.
But, when he launched his site in summer 2010, Murray used some
misleading or ambiguous text that suggested that he was manufacturing labels,
rather than merely reselling PTC's products.

PTC complained that Murray included a quote from Food Safety
Magazine extolling the virtues of PTC's paper thermometers, but omitted words
from that quote that identified PTC as the manufacturer of those products. PTC
also complained that the “About Us” section contained a false and misleading
claim that “[f]rom our tightly integrated sales and manufacturing facilities in
southern New Hampshire, DishTemp Safety manufactures and distributes the most
accurate commercial dishwashing temperature testing indicators available. Our
engineers have over 30 years of field tested experience.” Murray didn’t manufacture anything or employ
engineers. But PTC knew that early on,
and Murray’s plan all along was to be a reseller. When the Duerigs left the company, they gave
Murray contact information for someone still there so he could continue to get
supplies from PTC. PTC nonetheless
maintained that Murray intended to enter the market as a competitor and “proxy”
for the Duerigs in a scheme to compete with PTC. “In short, rather than see the
language of Murray's website for what it plainly was—hyperbole born of
misguided youthful exuberance—PTC … choose to see it as evidence of a dogged
conspiracy between Murray and the Duerigs to harm PTC ….” Murray’s only sales were to PTC’s agent, who
placed two orders and received PTC-manufactured labels.

PTC claimed that Murray copied its website and packaging
materials as well as engaged in false advertising. First, the court found that statutory damages
and fees were unavailable under the Copyright Act, since registration took
place after the DishTemp website launched.
PTC argued that it was entitled to prospective injunctive relief as well
as “actual damages” from the Duerigs, who allegedly induced Murray to infringe,
in the form of costs and attorneys’ fees incurred in suing Murray. They argued that they were not seeking
attorneys’ fees as such, but rather seeking recovery for the monetary harm
incurred in being forced to sue another.
The court found no supporting precedent for this under the Copyright Act
or the Lanham Act. The Restatement
(Second) of Torts says that “One who through the tort of another has been
required to act in the protection of his interests by bringing or defending an
action against a third person is entitled to recover reasonable compensation
for loss of time, attorney fees and other expenditures thereby suffered or
incurred in the earlier action.” This
makes sense when a party is forced to defend
an action as a result of a third party’s wrongful action, but is less clear in
scope when a party initiates suit and seeks to recover costs and fees as
damages from a different party. New
Hampshire provides for fee recovery when a party has been forced to litigate by
another’s bad faith. But (even assuming
state precedent has any relevance, which I’m not sure it would given the
federal basis of this claim), nothing in the record suggested that PTC was
forced to litigate. To the contrary, the
record suggested that “if plaintiffs had simply contacted Murray, explained
their position, and asked him to either modify or shut down his website, he
would have immediately complied, as he did when he learned of the lawsuit.” A C&D would also likely have worked. These simple, cheap steps would have avoided
the “damages” PTC sought to recover.

As for false advertising, PTC suffered no cognizable
harm. “In these odd circumstances,
product quality was entirely consistent with PTC's standards since the product
Murray intended to sell was PTC's product. No sales were diverted, but even if
some customers had purchased from Murray rather than from PTC, Murray still
would have had to first buy the products from PTC, at retail.” Note that this is inconsistent with the
general assumptions of reverse passing off—that a plaintiff is harmed by having
people think its products are the defendant’s, since the defendant gets any
reputational benefit from the sales. I think the court here has the better of
the empirics; harm from reverse passing off is likely to be rare.

The court declined to award injunctive relief on the federal
claims against Murray. Even assuming
that the presumption of irreparable injury still applied after eBay, there was no presumption that past
infringements will be repeated, and it was highly unlikely that Murray would
ever again attempt to buy and resell PTC's products, much less copy its website
content. Enjoining the Duerigs was also unjustified. There was no plausible evidence that the
Duerigs ever encouraged Murray in any infringing activity.

The court declined to exercise supplemental jurisdiction
over the remaining state law claims.

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